# NVE Corp: Form 10-Q for the period ended Sep 30, 2009

- Company: [NVE Corp](/companies/nvec.md) (CIK 724910)
- Form: 10-Q
- Filed: 2009-10-21
- Accepted by EDGAR: Oct 21, 2009, 20:16 ET
- Period: 2009-09-30
- Accession: 0000724910-09-000020
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/724910/000072491009000020/q2q10.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/724910/000072491009000020/

## Management's discussion and analysis

As filed, 12,342 characters.

### Forward-looking statements

Some of the statements made in this Report or in the documents incorporated by reference in this Report and in other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”) as well as information included in verbal or written statements made by us constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue, or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of NVE, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors, including but not limited to an uncertain economic environment, risks associated with our marketable securities, competition including entry of new competitors, progress in research and development activities by us and others, variations in costs that are beyond our control, adverse legal proceedings, lower sales, failure of suppliers to meet our requirements, failure to obtain new customers, inability to carry out marketing and sales plans, inability to meet customer technical requirements, inability to consummate license agreements, ineligibility for SBIR awards, loss of key executives, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.

Further information regarding our risks and uncertainties are contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2009.

### General

NVE Corporation, referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data. We have also licensed our spintronic magnetoresistive random access memory technology, commonly known as MRAM.

### Critical Accounting Policies

A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2009. At September 30, 2009 our critical accounting policies and estimates continued to include research and development contract percentage of completion estimation, product warranty estimation, inventory valuation, allowance for doubtful accounts estimation, and deferred tax assets estimation.

### Quarter ended September 30, 2009 compared to quarter ended September 30, 2008

The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

*Revenue*

| 2009 | Percentage of Revenue Quarter Ended Sept. 30 | 2008 | Quarter- to-Quarter Change |
| --- | ---: | ---: | ---: |
| Product sales | 79.5% | 85.0% | 6.3% |
| Contract research and development | 20.5% | 15.0% | 55.4% |
| Total revenue | 100.0% | 100.0% | 13.6% |
| Cost of sales | 30.5% | 30.5% | 13.6% |
| Gross profit | 69.5% | 69.5% | 13.6% |
| Expenses |  |  |  |
| Selling, general, and administrative | 9.5% | 10.2% | 6.3% |
| Research and development | 4.5% | 4.9% | 3.8% |
| Total expenses | 14.0% | 15.1% | 5.5% |
| Income from operations | 55.5% | 54.4% | 15.9% |
| Interest and other income | 6.0% | 4.8% | 41.9% |
| Income before taxes | 61.5% | 59.2% | 18.0% |
| Provision for income taxes | 20.1% | 19.0% | 20.0% |
| Net income | 41.4% | 40.2% | 17.1% |

Total revenue for the quarter ended September 30, 2009 (the second quarter of fiscal 2010) increased 14% to $6,508,501 compared to $5,727,790 for the quarter ended September 30, 2008 (the second quarter of fiscal 2009). The increase was due to a 6% increase in product sales and a 55% increase in contract research and development revenue. The increase in product sales was due to the addition of new customers and increased purchase volume by existing customers. The increase in research and development revenue was due to new contracts. The increase in research and development revenue may not be representative of future trends and there can be no assurance of additional or follow-on contracts for expired or completed contracts.

Gross profit margin was 69% of revenue for the second quarter of fiscal 2010, unchanged from the second quarter of fiscal 2009. Higher margins on both product sales and contract research and development revenue offset a less favorable revenue mix with a higher portion of revenue from contract research and development.

Selling, general, and administrative expense for the second quarter of fiscal 2010 increased 6% compared to the second quarter of fiscal 2009, primarily due to increases in salaries, commissions, and stock-based compensation expense. Stock-based compensation expenses for the quarters ended September 30, 2009 and 2008 were primarily due to the issuance of automatic stock options to our non-employee directors on their reelection to our Board. The increase in stock-based compensation for the quarter ended September 30, 2009 compared to the prior-year quarter was primarily due to a higher stock price at the date of grant compared to the prior-year date of grant.

Research and development expense increased 4% for the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009 due to increased sensor and coupler product development. Our research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development activities.

Interest and other income increased 42% to $393,198 for the second quarter of fiscal 2010 compared to $277,074 for the second quarter of fiscal 2009. The increase was due to an increase in interest-bearing marketable securities.

The provision for income taxes was $1,308,522, or 33% of income before taxes, for the second quarter of fiscal 2010 compared to $1,090,629, or 32% of income before taxes, for the second quarter of fiscal 2009. The effective tax rate can fluctuate due to a number of factors, some of which are outside our control.

The 17% increase in net income in the second quarter of fiscal 2010 compared to the prior-year quarter was primarily due to increases in product sales, contract research and development revenue, and interest income, partially offset by increased expenses.

### Six months ended September 30, 2009 compared to six months ended September 30, 2008

The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

*Revenue*

| 2009 | Percentage of Revenue Six Months Ended Sept. 30 | 2008 | Period- to-Period Change |
| --- | ---: | ---: | ---: |
| Product sales | 80.3% | 88.9% | 13.7% |
| Contract research and development | 19.7% | 11.1% | 124.4% |
| Total revenue | 100.0% | 100.0% | 26.0% |
| Cost of sales | 29.1% | 29.8% | 22.9% |
| Gross profit | 70.9% | 70.2% | 27.3% |
| Expenses |  |  |  |
| Selling, general, and administrative | 9.4% | 10.5% | 12.8% |
| Research and development | 4.2% | 6.3% | (16.2)% |
| Total expenses | 13.6% | 16.8% | 2.0% |
| Income from operations | 57.3% | 53.4% | 35.3% |
| Interest and other income | 5.7% | 5.0% | 42.7% |
| Income before taxes | 63.0% | 58.4% | 35.9% |
| Provision for income taxes | 20.8% | 18.7% | 39.9% |
| Net income | 42.2% | 39.7% | 34.0% |

Total revenue for the six months ended September 30, 2009 increased 26% to $13,343,033 compared to $10,591,576 for the six months ended September 30, 2008. The increase was due to a 14% increase in product sales and a 124% increase in contract research and development revenue. The increase in product sales was due to the addition of new customers and increased purchase volume by existing customers. The increase in research and development revenue was due to new contracts. The increase in research and development revenue may not be representative of future trends and there can be no assurance of additional or follow-on contracts for expired or completed contracts.

Gross profit margin increased to 71% of revenue for the first six months of fiscal 2010 compared to 70% for the first six months of fiscal 2009. The increase was due to higher margins on both product sales and contract research and development revenue.

Selling, general, and administrative expense for the first six months of fiscal 2010 increased 13% compared to the first six months of fiscal 2009, primarily due to increased salaries, performance-based compensation, commissions, and stock-based compensation expense. Stock-based compensation expenses for the six months ended September 30, 2009 and 2008 were primarily due to the issuance of automatic stock options to our non-employee directors on their reelection to our Board. The increase in stock-based compensation for the six months ended September 30, 2009 compared to the prior-year period was primarily due to a higher stock price at the date of grant compared to the prior-year date of grant.

Research and development expense decreased 16% for the first six months of fiscal 2010 compared to the first six months of fiscal 2009 due to an increase in contract research and development activities, which caused resources to be reallocated from expensed research and development activities. The decrease in research and development expense for the six-month period may not be representative of future expense trends. Our research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development activities.

Interest and other income increased 43% to $763,223 for the first six months of fiscal 2010 compared to $534,909 for first six months of fiscal 2009. The increase was due to an increase in interest-bearing marketable securities.

The provision for income taxes was $2,779,680, or 33% of income before taxes, for the first six months of fiscal 2010 compared to $1,986,686, or 32% of income before taxes, for the first six months of fiscal 2009. The effective tax rate can fluctuate due to a number of factors, some of which are outside our control.

The 34% increase in net income in the first six months of fiscal 2010 compared to the prior-year period was primarily due to increases in product sales, contract research and development revenue, and interest income.

### Liquidity and capital resources

At September 30, 2009 we had $43,626,680 in cash plus short-term and long-term marketable securities compared to $34,321,811 at March 31, 2009. Our entire portfolio of short-term and long-term marketable securities is classified as available for sale. The increase in cash plus marketable securities in the first six months of fiscal 2010 was primarily due to $6,617,013 in net cash provided by operating activities, a $1,952,593 net increase in the market value of our marketable securities due to market-price changes, and $622,423 in net proceeds from the sale of common stock related to option exercises.

Deferred taxes were a $23,971 liability at September 30, 2009 compared to a $667,729 asset at March 31, 2009. The change was primarily due to a $702,771 increase in deferred taxes related to the net increase in the value of our marketable securities. Accounts receivable decreased by $413,671 at September 30, 2009 compared to March 31, 2009 due to the timing of payments by our customers. Inventories decreased by $382,632 due to raw material purchase timing and our efforts to manage certain inventories.

We currently believe our working capital is adequate for our needs at least for the next 12 months.

## Market risk

As filed, 1,036 characters.

The primary objective of our investment activities is to preserve principal while at the same time maximizing after-tax yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and marketable securities in a variety of securities including government agency obligations, municipal obligations, corporate obligations, and money market funds. Short-term and long-term marketable securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of estimated tax. Marketable securities as of September 30, 2009 had remaining maturities between seven and 58 months. Our short-term and long-term marketable securities had a fair market value of $41,036,494 at September 30, 2009, representing approximately 81% of our total assets. We have not used derivative financial instruments in our investment portfolio.

## Controls and procedures

As filed, 1,901 characters.

Our Annual Meeting of Shareholders was held on August 6, 2009. Proxies for the meeting were solicited pursuant to Regulation 14 under the Exchange Act. All of our directors attended the meeting. The Annual Meeting was held for the following purposes: (1) to elect five directors to serve until the next Annual Meeting of Shareholders; and (2) to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2010. There were 4,682,583 shares of common stock entitled to vote at the meeting with a majority represented at the meeting. The affirmative vote of the majority of the votes cast was required to pass each of the proposals. The Board of Directors recommended a vote for election of the director nominees and for ratification of the selection of our independent registered public accounting firm. There was no solicitation in opposition. Each director nominee was reelected to serve as a director until our next Annual Meeting of Shareholders and the selection of our independent registered public accounting firm was ratified.

Voting results were as follows:

*To elect five directors to serve until the next Annual Meeting of Shareholders.*

| Voted For 1. | Number of Shares | Withheld |  | Abstain |  |
| --- | ---: | --- | ---: | --- | ---: |
| Terrence W. Glarner | 3,824,696 |  | 138,609 |  | 1,060 |
| Daniel A. Baker | 3,826,733 |  | 136,572 |  | 1,060 |
| James D. Hartman | 3,839,242 |  | 124,063 |  | 1,060 |
| Patricia M. Hollister | 3,836,415 |  | 126,890 |  | 1,060 |
| Robert H. Irish | 3,818,095 |  | 145,210 |  | 1,060 |
|  | **Number of Shares** |  |  |  |  |
| **Voted For** |  | **Voted Against** |  | **Abstain** |  |
| 2. To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2010. | 3,931,395 |  | 30,956 |  | 2,015 |

Filed Oct 21, 2009.
Source: SEC EDGAR, the filing index for accession 0000724910-09-000020. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.